Put a Fork in It

A few thoughts as Q1 comes to a close. When judged by capital market adjustments, things have more than "kinda sorta worked out." However, one of the consequences of a monetary (quantitative) regime is the increased elasticity between markets and reality. The interest rate benchmarks corrected violently in March with heavy long liquidation in 5s and a big jump to short 10s per CoT data on 3-20.

Gasoline prices remain the most obvious threat to the US advance. The European situation will pop back onto screens as LTRO benefits are being over accepted as a fix. Term structure inside the Fed's influence (reflected in edh12-edh13) went from 2.5 bps to 32.5 bps. The Fed's response to this important feedback will be closely watched in Q2. China is constantly singled out as the primary risk to the recovery. The managed economy has already shown a substantial correction in equity valuations can occur without toppling basic growth.

We feel the pendulum has shifted too quickly from the End of the World (last Oct.) to Exuberance (upside target adjustments up). We feel most continue to calibrate predictive tools to the acme of the credit super cycle, a fatal flaw. "Not too hot, and not too cool" is not Goldilocks. Kinda, sorta working out could be shifting to "meh."

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